If you’re considering purchasing an existing business, investigate it just as you would a business startup. Ask yourself:
• Do I have experience in this type of business?
• Will I enjoy running the business six months or six years from now?
• Do I have the finances to buy the business and keep it operational?
Then ask these types of questions about the existing business:
• What’s its history over the past five years?
• Have revenues been increasing or decreasing?
• Why is the owner selling?
• What do customers say about the business?
If no major roadblocks exist after the initial investigation, you’re ready to establish a fair purchase price. A common formula combines the market value of hard assets, the cost value of the inventory, any liabilities, and the goodwill value of the business.
When you and the seller come close to agreeing on a price, get the professionals involved. An accountant experienced in buying and selling businesses should thoroughly review the business’ financial picture of the past five years and help you negotiate the final purchase price. Also have an attorney prepare a purchase offer and the final sales contract.
Gene Fairbrother ShopTalk 800® Business Consultant National Association for the Self-Employed Dallas